This paper begins by systematically developing the “static” theory of preferential trade areas (PTAs) and showing that neither a large volume of initial intra-union trade nor geographical proximity can serve as a guide to welfare enhancing PTAs. The paper then discusses the modern literature addressing welfare effects of simultaneous division of the world into many PTAs, the impact of the decision to form a PTA on external tariffs and the “dynamic” time-path question of whether PTAs are building blocks or stumbling blocks towards multilateral freeing of trade. A final section discusses key theoretical considerations in the empirical evaluation of PTAs.

This paper presents a three-good, two-country, general equilibrium model that is consistent with several stylized facts of economic growth. The three goods are manufactures, agriculture, and services. Manufactures are subject to economies of scale. The model predicts that services, a nontraded good, must be more expensive in the country with higher per capita income. It also shows that as per capita income increases, we should expect the productivity in commodities relative to services to rise. The model is able to generate many other stylized facts of economic growth.

Journal Article Import Objective, Distortions, and Optimal Tax Structure: A Generalization Get access Arvind Panagariya Arvind Panagariya University of Maryland Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 98, Issue 3, August 1983, Pages 515–524, https://doi.org/10.2307/1886024 Published: 01 August 1983

Economists measure the cost of protection in terms of static efficiency, growth rates and firm- or industry-level productivity effects. This survey is devoted exclusively to the literature on the static efficiency. A key preliminary point to note is that estimates in this literature are not derived econometrically from pre- and post- liberalization data. Instead, they are based on simulations of partial- or general-equilibrium models that are parameterized using estimates from the literature and calibrated around a pre-liberalization base year. This paper explores alternate measures of protection and thei welfare costs.

This paper discusses some trade and welfare implications of the two-sector model based on increasing returns to scale (IRS) in one industry and decreasing returns to scale (DRS) in the other. It has been shown by Horst Herberg and Murray Kemp that, given homothetic production functions with IRS in one industry and DRS in the other, the production-possibilities frontier (PPF) is strictly concave to the origin near the IRS axis and strictly convex to the origin near the DRS axis. While this result constitutes an important finding and is contrary to the general impression among economists, even twelve years after the publication of Herberg and Kemp's paper, no attempt has been made to analyze its implications for welfare and patterns of specialization.' In this paper, I consider a simple twocommodity model with IRS in one industry and DRS in the other, and discuss some interesting implications of variable returns to scale (VRS). First, I demonstrate that, in this model, if a small, open economy specializes completely in production, it will do so in the DRS commodity and not in the IRS commodity as is generally believed. Second, if, at a given price ratio, an internal production equilibrium exists, a welfaremaximizing small, open economy will never specialize completely in production even though the PPF exhibits decreasing opportunity costs over a part of its range. Third, given output-generated economies and diseconomies of scale, welfare maximization for a small country requires a permanent tax subsidy scheme encouraging expansion of the IRS industry and contraction of the DRS industry. Finally, in a two-country model with identical tastes and technology across the countries, free trade equilibrium may result in incomplete specialization by the exporter of the IRS commodity and complete specialization by the exporter of the DRS commodity. In the course of the analysis, I argue that Tinbergen's formulation of Frank Graham's case for protecting the IRS industry is incorrect. I then present a possible reformulation of it. In Section I, the basic production model is introduced; in Section II, the model is analyzed; and in Section III, it is argued that all the results continue to hold in the multifactor case.

In this study a model of firm behavior that allows the level of capital utilization to be optimally chosen by cost-minimizing firms is embedded into the standard specific-factors model employed in the international trade literature. The resulting generalization of the specific-factors model provides several new insights. For instance, allowing for variable utilization in either or both sectors gives rise to a greater variety of possible trade patterns than forcing utilization to remain constant. Similarly, international differences in the willingness to work during abnormal hours generate a wider variety of trade patterns than are possible in the standard specific-factors model. Finally, this model allows a reconciliation of the “dual scarcity” explanation of the nineteenth century Anglo-American pattern of trade with the historical evidence on levels of utilization.